KL office rental rates to drop 5% By 2020

KUALA LUMPUR, Feb 4 — The office space rental rates in Kuala Lumpur (KL) are expected to decline by 5% by 2020 due to pressure from the impending supply in the market.

“Another seven to eight million sq ft of office spaces are expected to enter the market by 2020 from developments such as Tun Razak Exchange, Bandar Malaysia projects…so office rentals are likely to be under pressure,” said Executive Chairman of Rahim & Co, Datuk Abdul Rahim Rahman.

“In order to keep the tenants, the landlord might have to reduce the rental by about five per cent,” he said, adding office buildings located far from transport facilities such as light rapid transit stations might drop further to 20 per cent.

He was speaking to reporters after releasing the “Rahim & Co Research – Property Market Review 2015/2016” here, today.

Abdul Rahim said currently, the average office rental in the market is between RM4.50 and RM13 per sq ft in KL city centre area.

“The average occupancy rate for all offices in KL is about 80% (of a total supply of 88.9 million sq ft), which is a healthy figure,” he said.

Meanwhile, on the affordable housing issue, Abdul Rahim urged the government to intensify and increase its efforts in building more affordable houses for the people.

Citing the 1Malaysia People’s Housing (PR1MA) programme, he said instead of just completing 10,000 units by the end of the year, the government should complete more than that this year.

“PR1MA is due to have 74,000 units under various construction stages by 2016, but only 10,000 units are due for completion by year-end…Maybe they should complete more units by 2016,” he said.

Meanwhile, in its report, the international property consultant said the property market in the country is expected to be challenging with moderate activity this year.

“Prices are still expected to rise but more marginal for the residential sector depending on the location and type of property,” it said.

For the retail sector, it anticipates that prices and rental rates will remain competitive while the office sector will remain challenging.

According to the report, the total property transactions in the first half of 2015 (H12015) fell by 3.5% year-on-year (y-o-y) to 186,661 transactions from 193,405 transactions in H12014, valued at RM76.6 billion, down by 6.6% from the same period previously.

For the residential sector, it said the total transaction value declined by 9.7% in H12015 to RM36.4 billion from RM40.3 billion in H12014.

For the commercial sector, office supply in KL rose 6.9% to about 88.9 million sq ft in H12015, with total supply rising by 6.9% y-o-y with new space injected of about 5.75 million sq ft.

“As for the retail sector, the total retail space supply in KL increased by 6.3% to 28 million sq ft in H12015 from 26.4 million sq ft in H12014,” it said.

Retail sales have reportedly been very slow as a result of factors such as the implementation of Goods and Services Tax and the weakening ringgit.